Group Economics
Daily Insight
Macro & Financial Markets Research Maritza Cabezas & Nick Kounis
Dovish Fed and ECB minutes
+31 20 343 5616
9 October 2015 • FOMC minutes: Fed opted to wait in September on fear global slowdown could push inflation lower • We expect Fed to wait until 2016 before raising interest rates • ECB minutes point to increased downside risks - we see more QE in December FOMC buys time on fears of impact of global slowdown
FOMC projections (September meeting)
The FOMC minutes of the September meeting show that risks in emerging markets, particularly in China, raised concern at the Fed on the effects that these developments would have for the US economy and the inflation outlook. As a result, the Fed left its
%
6 5
policy rate on hold during the September meeting. It seems that if
4
these developments had not taken place a rate hike in September
3
would have been likely.
2 1
Labour market almost there… This meeting took place before the disappointing September job market report. Before these figures, Fed participants
0 2015
2016 GDP
Unemployment
2017 PCE
2018
policy rate
mentioned that the labour market had considerably improved and they thought that it would soon meet one of the criteria for policy normalization. For some, a broader improvement of the
Source: Federal Reserve
labour market, could require a temporary decline in the unemployment rate below its long-run normal level to speed up
ECB meeting minutes: 'broad agreement' on downside risks
inflation to the 2% target.
The account of the September Governing Council meeting, published earlier on Thursday, confirmed the dovish tone seen in
…while inflation concerns appear to have increased
President Draghi's press conference after that meeting. The
Some participants indicated that their confidence that inflation
meeting account records that in the Governing Council's
would gradually return to the 2% target 'had not increased, in large
'assessment of the risks surrounding the inflation outlook, there
part because of the recent global and financial developments'.
was...broad agreement that the risks were tilted to the downside,
They needed further confirmation that the economy would continue
given lower commodity prices, a stronger euro exchange rate and
to expand at a moderate rate and labour market conditions would
a somewhat lower growth outlook'. There were also downside
further improve. Forecasts released in September suggest that the
risks to growth as 'recent developments in emerging market
2% target would only be reached in 2018.
economies could have further adverse effects on global growth via both trade and confidence channels'. There was a need to await
More time to see impact of external headwinds on US data
'greater clarity' on these events, but the Council emphasised its
Participants mentioned some of the implications of a material
'willingness and ability to act'.
slowdown in China and possible spillovers to other economies. For the US economy this would mean weaker trade and a
ECB likely to step up QE in December
further appreciation of the USD. This led some participants to
Our general sense from the account is that members judged that
judge that downside risks had increased for economic growth and
the outlook had deteriorated and risks had increased, but that it
inflation. We think the disappointing September jobs market report
was too early to decide on further action at that point. However,
would only have increased the uncertainty. As such, the Fed will
the situation has not turned for the better since September, while
probably delay the rate hike to 2016 to give it more certainty that
the Fed's delay will put upward pressure on the euro if the ECB
data is improving again and that downside risks from EM are
does not act. Our base scenario is that the ECB will step up its QE
easing. Our view is that the first hike will not come until June
programme in December. We expect it to raise the monthly
2016. We don’t rule out a rate hike in March 2016 if this process
purchase amount by EUR 20bn and signal that it will likely extend
turns out to run relatively quickly.
purchases beyond September 2016.
2
Dovish Fed and ECB minutes – 8 October 2015
Financial markets Currency markets
Close
Change 1 day
Change 5 days
Change YTD
EUR/USD USD/JPY
1.1283
0.0621
0.5974
119.92
-0.0083
0.0083
-6.7367 0.1169
AUD/USD
0.7270
0.1377
3.1938
-11.0703
USD/CHF
0.9660
-0.0104
-0.5661
-2.8462
NZD/USD
0.6674
0.1050
3.7786
-14.4030 -1.4188
GBP/USD
1.5356
0.0521
1.1261
USD/SGD
1.4021
-0.1709
-2.1427
5.7790
USD/CAD
1.2991
-0.1921
-1.2241
11.7890
Bond markets
Close
Change 1 day
Change 5 days
Change YTD
2-year German Govt Bond yield
-0.2480
0.0020
0.0210
-0.1500
10-year German Govt Bond yield
0.5860
-0.0070
0.0500
0.0450
Yield curve Germany
0.8340
-0.0090
0.0290
0.1950
2-year US Treasury Bond yield
0.6310
-0.0020
0.0516
-0.0335
10-year US Treasury Bond yield
2.0898
-0.0142
0.0969
-0.0814
Yield curve US
1.4588
-0.0122
0.0453
-0.0479
US 2-year sw ap rates
0.7553
-0.0151
0.0576
-0.1390
US 10-year sw ap rates
2.0769
0.0016
0.1308
-0.2092
US sw ap curve
1.3216
0.0167
0.0732
-0.0702
EU 2-year sw ap rates
0.0530
0.0050
0.0175
-0.1220
EU 10-year sw ap rates
0.9758
-0.0062
0.0768
0.1638
EU sw ap curve
0.9228
-0.0112
0.0593
0.2858
-0.0480
-0.0020
-0.0050
-0.1260
Euribor 3 Month ACT/360 ICE LIBOR USD 3 Month
0.3186
0.0006
-0.0064
0.0630
JPMorgan EMBI Plus Sovereign S
404.0500
-5.7400
-33.4800
16.6100
Equity markets
Close
Change 1 day % Change 5 days %Change YTD%
Nikkei 225
18,141
-0.99
2.35
3.96
Hang Seng Index
22,355
-0.71
7.24
-5.30
Hang Seng China Enterprises Index
-14.16
10,287
-1.03
9.38
Australian Stock Exchange S&P/ASX 200 Index
5,260
0.95
4.12
-2.79
Singapore Straits Times Index
2,947
-0.50
5.18
-12.43
Euro Stoxx 50 Index
3,225
-0.04
5.08
2.50
S&P 500 Index
2,013
0.88
4.66
-2.21
MSCI World Daily Total Return Gross USD
755
0.53
4.96
-1.60
AEX Index
442
0.34
5.55
4.15
17
-5.33
-22.75
-9.27
Chicago Board Options Exchange Volatility Index
Commodity markets Reuters/Jefferies CRB Total Return Gold spot USD/Oz Generic first NYMEX Crude Light future Generic first Brent Crude Oil future LME Copper 3 Months Rolling Forw ard Generic first Wheat future Chicago Board of Trade Source: Bloomberg
Close
Change 1 day % Change 5 days %Change YTD%
202
0.86
4.57
1,141
0.17
0.19
-12.44 -3.71
50
0.49
9.07
-6.76
53
0.51
10.78
-6.99
5,135
-1.00
0.79
-18.49
511
-0.05
-0.39
-13.31
3
Dovish Fed and ECB minutes – 8 October 2015
Day
Date
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Monday Monday Monday Monday Monday Monday Monday
05/10/2015 05/10/2015 05/10/2015 05/10/2015 05/10/2015 05/10/2015 05/10/2015
09:00:00 10:00:00 10:00:00 10:30:00 11:00:00 15:45:00 16:00:00
CH EC EC GB EC EC US
Total Sight Deposits bn PMI services - index Composite PMI output PMI services - index Retail sales - % mom ECB announces weekly QE details ISM non-manufacturing, index
Sep F Sep F Sep Aug
465 53.7 53.6 53.3 0.0
54.0 53.9 56.7 0.0
54.0 53.9
Sep
56.9
58.1
Tuesday Tuesday Tuesday
06/10/2015 06/10/2015 06/10/2015
08:00:00 14:30:00
DE US PL
Manufacturing orders - % mom Trade balance - USD bn Reference rate - %
Aug Aug Oct 6
-1.4 -41.9 1.5
0.3 -43.4 1.5
-0.2
Wednesday Wednesday Wednesday Wednesday
07/10/2015 07/10/2015 07/10/2015 07/10/2015
08:00:00 09:00:00 21:00:00
DE CH US JP
Industrial production - % mom Foreign currency reserves - CHF mln Fed Reserve consumer credit - USD bn Policy rate - %
Aug Sep Aug Oct 7
-1.2 541.5b 16.0 80.0
0.0
-0.1
Thursday Thursday Thursday Thursday Thursday Thursday
08/10/2015 08/10/2015 08/10/2015 08/10/2015 08/10/2015 08/10/2015
01:50:00 13:00:00 13:00:00 13:25:00 13:30:00 20:00:00
JP GB GB NL EC US
Machinery orders private sector - % mom Policy rate - % BoE size of asset purchase programme - GBP bn CPI - % yoy ECB account of the monetary policy meeting of 3 September FOMC minutes Sept. 16-17
Aug Oct 8 Oct Sep
-5.7 0.5 375.0 0.6
2.8 0.5
Friday
09/10/2015
10:30:00
GB
Trade balance - GDP mln
Aug
-3371.0
-2066.7
-0.1
1.5
19.1 80.0
Sep
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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